Panel Members, Witnesses Disagree On Limits for Physician-Owned Hospitals

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By Mindy Yochelson

May 19 — Leaders of a House subcommittee May 19 clashed over restrictions in the Affordable Care Act that ban the building and expansion of physician-owned hospitals.

“Since 2005, these hospitals have been prevented from growing to meet the needs of their communities” because of “discrimination” against one model of acute care, House Ways and Means Health Subcommittee Chairman Kevin Brady (R-Texas) said during a hearing on improving competition in Medicare.

However, Rep. Jim McDermott (D-Wash.), the ranking member on the subcommittee, said that changing the provision on physician-owned hospitals in the ACA “might make the industry happy” but also would “increase utilization of services and drive up health-care costs.”

McDermott was backed by Rich Umbdenstock, president and chief executive officer of the American Hospital Association, who said that most of his members oppose changing the ACA. The provision amended the Stark law to prohibit the establishment of new doctor-owned hospitals and expansion of operating rooms, procedure rooms and beds for existing facilities. It included an exceptions process.

AHA Opposes Change

Umbdenstock said the presence of physician-owned hospitals “skews the marketplace” in favor of physician owners who “cherry pick” patients who are the healthiest and wealthiest—and most profitable—for their own facilities.

“We urge you to reject efforts to change the carefully crafted compromise contained in law and help protect community hospitals and access to care for all who need it,” Umbdenstock said.

Physician-owned hospitals treat fewer Medicaid patients and provide limited or no emergency services, the AHA chief said. Their “practices place full-service hospitals at a disadvantage because they depend on a balance of services and patients to support the broader needs of the community.”

Umbdenstock said that physician-owed hospitals use services at a higher per capita rate. He cited a Congressional Budget Office report as finding that the limits placed by the ACA on doctor ownership of hospitals would reduce the federal deficit by $500 million over 10 years.

Repeal Urged

However, another witness, Joe Minissale, president of a physician-owned Texas-based hospital company, urged Congress to repeal the ACA provision and said that charges of cherry picking are “greatly exaggerated.”

Minissale said that his Methodist McKinney Hospital is “being forced by the ACA prohibition on expansion” to either stop serving Medicare, Medicaid and TRICARE beneficiaries in order to expand or to stop growing.

Even if the hospital received an exception to the expansion restriction, “we would still be limited to the number of beds we could add,” Minissale said.

Minissale said that his hospital's lack of Medicaid discharges stems from the location of the facility, which isn't close to an “indigent population,” but that the facility is willing to admit Medicaid enrollees.

Although Minissale's hospital is an AHA member, Umbdenstock said that the “vast majority” of members oppose a change in the law.

Subcommittee member Sam Johnson (R-Texas) said the panel's goal is not to criticize one form of hospital or another but to “let competition pick the winners and losers,” rather than the government.

DME Bidding Program 

On another competition issue, Brady said the committee is considering a proposal to “inject a more market-based approach” to the durable medical equipment (DME) competitive bidding program “to help address some of the serious concerns members of Congress from both parties have all heard about from constituents.”

The competitive bidding program expanded from Round One's nine areas to 91 additional areas for Round Two in 2013. By 2016, the Medicare program must implement competitive bidding or competitive bidding pricing for noncompetitive bidding areas.

One witness, Robert Steedley, president of Barnes Healthcare Services, said that because of problems with the bidding program, patients are receiving less service and lower quality care.

Limiting the Marketplace

The Valdosta, Ga.-based home medical equipment provider said the bidding program “radically reduces the number of providers” and creates “oligopolies in the marketplace at a time when our senior population is growing rapidly.”

Steedley's own company has declined a contract that it was offered “because we knew that at the contract price, which was lower than what we had bid, we could not in good faith take care of our customers.”

Steedley, speaking on behalf of the American Association for Homecare, said large providers can win bids in all product categories and areas and have been known to “resell the bids to desperate providers.”

He said that Medicare costs are being shifted to hospitals as a result of increased readmissions when beneficiaries are forced to pay cash or go without DME.

Steedley urged adoption of a different system, known as the Market Pricing Program, which he called a “reverse auction to establish market-based reimbursement rates.”

Questioning CMS's Appraisal

Although the Centers for Medicare & Medicaid Services has called the program a success, Rep. Tom Price (R-Ga.), a sponsor of legislation that would establish a DME market pricing program, said that the agency doesn't take into account whether beneficiaries receive the right care.

McDermott called Republican opposition to the program “ironic” because it was “a Republican Congress that first introduced the concept to Medicare as a demonstration project in the Balanced Budget Act of 1997” and then expanded it as part of the prescription drug legislation.

Brady said that, since Congress passed legislation on changing the physician payment system under the sustainable growth rate formula, the subcommittee will continue to hold hearings on improving the way Medicare pays other providers. In addition to hospital issues, topics will include physician shortages and rural health care.

To contact the reporter on this story: Mindy Yochelson in Washington at

To contact the editor responsible for this story: Ward Pimley at


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